Sunoco 2015 Annual Report Download - page 66

64
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including changing interest rates and volatility in market price of commodities
such as crude oil, NGLs and refined products. To manage such exposure, interest rates, inventory levels and expectations of
forward commodity prices are monitored when making decisions with respect to risk management.
Interest Rate Risk
We have interest rate risk exposure for changes in interest rates relating to our outstanding borrowings. We manage our
exposure to changing interest rates through the use of a combination of fixed- and variable-rate debt. At December 31, 2015,
we had $562 million of variable-rate borrowings under our revolving credit facility. Outstanding borrowings bear interest cost
of LIBOR plus an applicable margin. An increase in short-term interest rates will have a negative impact on funds borrowed
under variable-rate debt arrangements. The weighted average variable interest rate on our variable-rate borrowings was
approximately one percent at December 31, 2015. A one percent change in the weighted average rate would have impacted
annual interest expense by approximately $6 million for the year ended December 31, 2015.
At December 31, 2015, we had $5.0 billion of fixed-rate borrowings which was comprised of our outstanding senior
notes. This amount excludes the $93 million premium resulting from the adjustment of our assets and liabilities to fair value
resulting from the application of push-down accounting in connection with the acquisition of the general partner by ETP. The
estimated fair value of our senior notes was $4.2 billion at December 31, 2015. A hypothetical one-percent movement in
interest rates would have impacted the fair value of our fixed-rate borrowings at December 31, 2015 by approximately $377
million.
Commodity Market Risk
We are exposed to volatility in crude oil, NGLs and refined products commodity prices. To manage such exposures,
inventory levels and expectations of future commodity prices are monitored when making decisions with respect to risk
management. Our policy is to purchase only commodity products for which we have a market and to structure our sales
contracts so that price fluctuations for those products do not materially affect the margins we receive. We also seek to maintain
a position that is substantially balanced within our various commodity purchase and sales activities. We may experience net
unbalanced positions for short periods of time as a result of production, transportation and delivery variances, as well as
logistical issues associated with inclement weather conditions. When unscheduled physical inventory builds or draws do occur,
they are monitored and managed to a balanced position over a reasonable period of time.
We do not use futures or other derivative instruments to speculate on crude oil, NGLs or refined products prices, as these
activities could expose us to significant losses. We do use derivative contracts as economic hedges against price changes related
to our forecasted crude oil, NGLs and refined products purchase and sales activities with contracts intended to have equal and
opposite effects of the purchase and sales activities. At December 31, 2015, the fair market value of our open derivative
positions was a net asset of $12 million on 9.2 million barrels, primarily comprised of NGLs and refined products. These
derivative positions vary in length but do not extend beyond one year. A hypothetical ten percent adverse change in year-end
market prices of the underlying commodities being hedged by derivative contracts would have resulted in an estimated $11
million decrease in market value at December 31, 2015. This hypothetical loss was estimated by multiplying the difference
between the hypothetical and the actual year-end market prices of the underlying commodities by the contracted volume
amounts.
For additional information concerning our commodity market risk activities, see Note 15 to the consolidated financial
statements included in Item 8. "Financial Statements and Supplementary Data."